NEW YORK — A team representing Metro-Goldwyn-Mayer and its controlling shareholder, Kirk Kerkorian, will sit down with management from Polygram Filmed Entertainment for a due diligence briefing later this week, sources said Tuesday, in a signal that Kerkorian’s last-minute interest in buying PFE is being taken seriously by the company’s auctioneers.
Kerkorian threw his hat into the PFE fray late last week (Daily Variety, Aug. 25), changing the dynamic of the auction, which was beginning to be dominated by major companies such as EMI and Canal Plus.
Kerkorian, who owns 65% of MGM and will increase his stake to 90% once he completes the purchase of Seven Network’s interest, is getting plenty of attention. His reps are getting a management presentation despite the fact that Kerkorian has not yet submitted a written expression of interest in PFE.
In contrast, the five bidders to have received presentations from PFE’s management in recent weeks had to first lodge expressions of interest deemed credible by Goldman Sachs, which is overseeing the sale on behalf of Seagram Co.
PFE is being sold as a result of Seagram’s purchase of Polygram Holdings and is expected to fetch between $600 million to $1 billion. Neither Seagram nor MGM would comment Tuesday.
Wall Streeters say Seagram’s willingness to make an exception for Kerkorian likely reflects his resources, thought to be at least $6 billion, and his past willingness to put plenty of his own money into a deal. And Kerkorian already may have given Seagram a verbal indication of how much he would be willing to bid.
“Kirk Kerkorian is the person who last put up a bunch of money to buy a movie studio (when he bought MGM back in 1996) … so I would definitely pay attention to him,” said one investment banker Tuesday.
One person involved with the sale of PFE said Tuesday Kerkorian’s last-minute approach threw a “wild card” into the auction, particularly as competing bidders like EMI and Canal Plus will find it difficult to assess the seriousness of Kerkorian’s interest.
Five companies are now doing due diligence investigations in the leadup to making final bids Sept. 11: Canal Plus, EMI, Carlton Communications, Lakeshore Entertainment and Artisan Entertainment.
Kerkorian’s team is well behind these bidders timewise. Sources said Kerkorian’s private investment company Tracinda, which formally made the approach (although any bid will be coordinated with MGM), did not contact the Seagram camp about its interest in PFE until last Friday.
Two days earlier, Seven Network, which had been a partner of Kerkorian in the 1996 acquisition of MGM, agreed to sell its stake to Kerkorian. Seven is believed to have been opposed to expansion initiatives for the studio favored by Kerkorian and MGM management.
Their main interest in PFE is its international distribution system, as well as its 1,500-title library. The catalog would supplement MGM’s existing 4,000-title library while the distribution system would allow MGM to get out of the United Intl. Pictures partnership with Paramount and Universal.
Smart move for MGM?
Still, some observers question whether it makes sense for MGM to be thinking about buying PFE given that both companies are currently losing money and a merger would aggravate the Lion’s existing cash constraints. A PFE acquisition also would not help MGM achieve its stated objective of improving its distribution by allying itself with a broadcaster or cabler.
Sources said Kerkorian will decide after the management presentation whether to make a formal bid.
One Wall Street analyst, who did not want to be identified, argued that a PFE deal made sense because the film company was being sold just a year or two before it is expected to start making money. Its losses are partly attributable to the cost of starting its distribution system, which is up and running now, the analyst noted.
In Hollywood, the reaction to Kerkorian’s latest stunt was one of disbelief. “Putting the two companies together would be very bizarre,” said one topper of a leading indie company. “Both have a ridiculous overhead, neither is profitable, and where is the right team to manage such an entity?”
Mellow on merger
Nonetheless, Wall Street doesn’t appear to be too perturbed about the possibility of an MGM-PFE merger, as MGM stock rose 19¢ to close at $19.56 Tuesday. The stock has rallied 26% since the company announced plans for a $500 million stock offering Aug. 19 to replenish its coffers.
Separately Tuesday, MGM announced that its executive VP and general counsel David Johnson was quitting the studio “to form alliances with several private equity groups” that invest in media and entertainment companies.
Aside from overseeing the company’s legal affairs, Johnson had been responsible for identifying merger and acquisition investments and joint venture opportunities, MGM said in a statement.
Wall Streeters said Johnson was looking at several deals which would involve him in a semi-management role.
(Benedict Carver contributed to this report.)